Online Gambling Revenues Not What was Expected

Last year, three states were the first for the United States to legalize online gambling. These states included New Jersey, Delaware and Nevada. In New Jersey, experts predicted that online gaming helped the state revenue by more than $180 million for 2014. Republican Governor Chris Christie approved the bill last June, but guesses had been changed to an approximated $160 million in revenue.

It was towards the closing of May, a month away from the year’s end, according to the nonpartisan Office of Legislative Services, New Jersey had only taken in $9.4 million of revenue from Internet gaming. In addition to the negative news, the collections between April and May were less than those for March, which means that online gambling is not increasing in popularity.

What is the Cause?

People have said the lagging start is due to glitches in technology, and there were payment processing problems. New Jersey is not alone in receiving a humble revenue from Internet gambling. Both Delaware and Nevada were not doing well with online gambling.

Tax Differences

For online gambling in New Jersey, there is a 15 percent tax, as opposed to an eight percent tax for brick-and-mortar casinos. New Jersey has around 200,000 online gambling accounts that were registered.

Not as Successful as First Believed

Within the first five weeks of launch, New Jersey generated around $8.4 million. However, the number comes nowhere near the end of the fiscal year estimated total of $1.2 billion by the end of June 2014.

Developing Industry

Editor of the Online Poker Report, Chris Grove, said that this industry requires people to be informed. It has become an area open to interpretation because it was illegal for a long time. All three states have adopted a different approach to taxing the online gambling revenue. For Delaware, there is a given 43.5 percent, the racing industry for horses gets 10 percent while casinos are given 46.5 percent. Chris Grove stated that New Jersey’s revenue estimates were unrealistic to begin with because they tried for the most optimistic projections for the 12 months of revenue. Grove went on to say that the estimates were driven by political need and budget math rather than sober rational analysis of the market. Nevada taxes online gambling with a 6.75 percent tax rate. This is the same they use for other gaming revenue sources, and oddly enough, they are the ones who did the best because it is estimated that they will generate $400 million at the end of the fiscal year.

Spring Break

It is possible that the improvement in weather conditions has made people less interested in online gambling. Worldwide, online poker traffic is down. This could make people less interested in playing online games. Despite the lack of revenue, the physical casinos have still benefited substantially from online traffic. The remaining 11 physical casinos in New Jersey reported revenues of $232.4 million for May, which is down by 8.2 percent from last year. Internet gambling has served as a padding because when the Internet revenues were added to land-based income, they had an overall gain of 1.3 percent. Still, New Jersey Treasurer, Andrew Eristoff, spoke to state lawmakers about how the results did not meet expectations.

Other States

In 2011, U.S. lawmakers outlawed online gambling by finding an obscure 1961 law that applied to online gaming, but it recently reversed course on the previous interpretation. In 2014, California, New York and Mississippi have created bills that allow for online gambling. The Mississippi bill did not succeed with the committee. Meanwhile, West Virginia has decided on a resolution to study lottery and online gambling. This will help them to decide if they want to continue with legalization.

Future of Online Gambling Uncertain

The future for Internet gambling does not have certainty. In March of 2014, the United States senator Lindsey Graham and representative Jason Chaffetz created a bill to ban most forms of online gambling, and it developed a bipartisan support. Those who supported the online gambling ban include state governors Nikki Haley and Rick Perry. Sheldon Adelson, the Las Vegas Sands Corp. chief executive officer, is pushing the bill. However, he does have vested interests, considering he made his billions from casinos. He tries to argue that online gambling takes it past an unhealthy point, but it is somewhat of a hypocritical argument.

Other Issues with Online Gambling

Many problems have led to the lower-than-expected revenue from online gambling. New Jersey officials stated that geolocation technology. Additionally, some gamblers ran into obstacles with their credit cards that blocked them from gambling online. Also, there were a few credit card businesses who refused to participate altogether. Morgan Stanley released a research report for March that estimated 65 percent of online gambling transactions were rejected in New Jersey and nearly of those did not try to find other means for gambling. Israel Posner stated that the steep learning curve has contributed to lower revenues.

How New Jersey Companies Performed

The Borgata led the online industry since March, but experienced its first decline in May and made just slightly over $4 million. However, Borgata still has more than 38 percent of the online market. Caesars Interactive, the Borgata’s closest competitor, received around $2.8 million online, which is down from $3 million a month prior. In third place, the Tropicana took in around $1.9 million, which is down from $2.1 million. The Trump Plaza fell from $926,278 to $677,453. However, the Golden Nugget increased in revenue from $575,914 to $610,949. Additionally, the Golden Nugget performed the best among the physical casinos going from $9.6 million per year to $16.3 in May. Chairman of the New Jersey Casino Control Commission, Matt Levinson, reported that the Atlantic Club with Internet gambling revenues increased by 1.3 percent, and he predicted they would have been higher if there had not been an unlucky month at table games. Levinson continued by saying that one of the positive signs was that the amount of money being changed into chips at the tables increased 0.4 percent.

What Matthew Katz Says About the Industry

Matthew Katz, CEO and founder of Central Account Management System, has said that legalization of online gambling has forced a massive change for the Internet. States that allow gambling require players to be a minimum of 21 years old, and they must be physically within the state. This create a shift in the Internet that knows no borders to knowing exactly where and who the users are. This eliminates anonymity that the Internet was founded upon.

Katz has gone on to predict that the changes for online gambling will take place across the Internet for future taxation.

Is the Taxation too High?

The first year of online gambling is estimated to bring in $3.3 million, but Tom Cook, the Delaware state finance secretary, says this will not be enough for the casinos to make money. The state collects 100 percent of the first $3.75 million in online revenue for each year. Some have raised the concern that this prevents casinos from wanting to market online gambling. Cook continued by saying that if he’s going to work hard at promoting something to get the money of it, but gets no money from it, why promote it? Officials plan to discuss lowering the numbers when the Lottery and Gaming Study Commission has another meeting. Recently, lawmakers passed a $9.9 million aid package to help casinos.

Still Promising

Ed Sutor, president of Dover Downs Hotel and Casino said that his company is staying patient. They are offering a brand-new product to a country, but he sees a light at the end of the tunnel. The numbers have shown that users are winning, which is good for business said state lottery director Vernon Kirk. One of the things that stopped gambling in Delaware was the smaller population, which made it more difficult for poker. Recently, there was a signed agreement between Delaware and Nevada that allowed for the state to share online poker player pools.

Despite starting off slowly, there is still high hopes for the online gambling industry. While other states were overly optimistic, Delaware kept a realistic analysis of the market, and they weren’t nearly as off the mark as compared to the other two states. It may take a while to work out the glitches, but once it gets figured out online gambling will become more profitable. While it might not be the knockout the state hoped for, it is still a genuine means of revenue.